In a surprising development, the Internal Revenue Service (IRS) has announced that if a taxpayer’s 2017 payments, including estimated tax payments, exceed its 2017 net income tax liability described under Internal Revenue Code (Code) Section 965(h)(6)(A)(ii) (its net income tax determined without regard to Code Section 965) and the first annual installment (due in 2018) pursuant to an election under Code Section 965(h), the taxpayer may not receive a refund or credit of any portion of properly applied 2017 tax payments unless—and until—the amount of payments exceeds the entire unpaid 2017 income tax liability, including all amounts to be paid in installments under Code Section 965(h) in subsequent years. Thus, for taxpayers making an election under Code Section 965(h) to pay the transition tax over 8 years through installment payments, any overpayments of 2017 tax liabilities cannot be used as credits for 2018 estimated tax payments or refunded, unless and until the overpayment amount exceeds the full 8 years of installment payments.

The IRS’s position, announced on April 13, 2018 (the last business day before the normal due date for the filing of 2018 individual income tax returns), effectively allows the IRS to deprive taxpayers of the use of funds and credits for overpayments for a potentially multi-year period. This position is at odds with the normal practice of allowing refunds or credits of overpayments and arguably violates Code Section 7803(a), which provides for certain taxpayer rights. This position also would seem to be in conflict with Code Section 965(h) itself, allowing the Code Section 965 transition tax liability to be paid in eight backloaded installments rather than immediately. The AICPA sent a letter to the IRS on April 19, 2018, urging the IRS to change its position to avoid the “detrimental impact on all affected taxpayers, including individuals, small businesses and large corporations.” We are hopeful that the IRS will reconsider this misguided policy, but in the meantime, taxpayers need to be aware of it. Please contact one of McDermott’s lawyers if you think you might be affected by the IRS’s position on this subject.

Chambers USA released its 2018 edition of annual rankings of law firms and lawyers in various practice areas. We are honored that Chambers USA has recognized McDermott’s tax practice and several of its lawyers in the latest rankings. A summary of McDermott’s tax rankings is listed below along with a complete list available here to all McDermott rankings.

On the tax controversy side, our team was recognized as known for a “Dominant presence in high-value tax disputes across the USA, fielding particular expertise in transfer pricing litigation and SALT work.” Clients said we are “very responsive and very good advisors,” and added, “they are very cohesive and have vast experiences.” Clients agreed that they get good value from the Firm; “It’s outstanding client service and worth every penny. Billing has been very detailed and understandable.Continue Reading McDermott Continues to Receive Top Rankings in Tax in Chambers USA 2018

Wrapping Up April – and Looking Forward to May

Top April Posts You May Have Missed

President Trump Announces Intent to Nominate Emin Toro to Tax Court

IRS Releases Practice Unit on Statutes of Limitation

National Taxpayer Advocate Reminds Congress of IRS Deficiencies

Tax Controversy Activities This Week

May 1, 2018: Elizabeth Erickson is on “Exchange of Information – The New Landscape” at the TEI Audits and Appeals Seminar in New Orleans, LA.

May 3, 2018: Andrew Roberson is presenting “Preventing Disputes 2: Taxpayer Rights in the Administrative Phase” at the International Conference on Taxpayer Rights in Amsterdam, Netherlands.

Upcoming Tax Controversy Activities in May

Our lawyers will present on the following key tax topics during the month of May. We hope to see you.

May 7, 2018: Kristen Hazel and Michael Louis will present “Navigating Tax Reform: BEAT and FDII” at TEI-Houston Chapter 2018 Tax School in Houston, TX.

May 10, 2018: Robin Greenhouse and Kevin Spencer are going to speak about tax controversy and privilege at the International Fiscal Association’s New York/Connecticut Region meeting in Old Greenwich, CT.

May 11, 2018: Elizabeth Erickson will discuss “Section 162(q) – No Longer Silent” at the ABA Section of Taxation Meeting in Washington, DC.

May 11, 2018:  Stephen Kranz will present “Handling Tax Controversy to Win” and “The Digital Tax Tsunami:  What You Need to Know to Help Your Clients” at Avalara’s CRUSH DC 2018 in Washington, DC.

May 21-22, 2018: Thomas Jones is presenting “Impact of the Change in Corporate Tax Rates & Other Tax Developments” at the Texas Captive Insurance Association 5th Annual Conference in Houston, TX.

On April 24, 2018, the US Department of the Treasury (Treasury) released a report (Report) outlining the efforts undertaken to-date by Treasury to implement the president’s regulatory reform agenda.  The efforts have been in furtherance of President Trump’s Executive Order 13771 and Executive Order 13789 calling for a reduction in regulatory burdens and costs.

The Report highlights Treasury’s extensive efforts to support President Trump’s regulatory reform agenda.  In particular, the Report provides that Treasury has:

  • Reduced its regulatory agenda by approximately 100 regulations from its Fall 2017 agenda
  • Issued a notice to eliminate almost 300 “deadwood” tax regulations that are duplicative or obsolete
  • Withdrawn two regulations deemed “significant” in an October 2017 report (see prior discussion here)
  • Issued a series of reporting providing specific recommendations to make the US financial regulatory system more efficient

The Report also provides that, since the issuance of Executive Order 13771 (outlining the Trump administration’s “one-in-two-out” principle), Treasury has focused on burden-reducing measures and that no new “regulatory” actions have been undertaken.  Rather, actions from Treasury’s fall 2017 agenda have either been identified as “deregulatory” or have not yet been classified.

The Report also notes that Treasury has also undertaken a retrospective review of significant recent tax regulations pursuant to Executive Order 13789 and identified eight regulations for rescission or modification (largely consistent with the October 2017 report).

Treasury has indicated that these actions will “advance the President’s policy of regulatory efficiency in support of lower individual and corporate compliance burdens.”

Practice Point:  Taxpayers should continue to monitor Treasury’s action with respect to regulatory reform, especially in light of the regulatory process in connection with US tax reform.

In a press release on April 24, 2018, the White House stated that President Trump has reappointed Tax Court Judge Mark Holmes for a second 15-year term.  Judge Holmes was originally appointed by President George W. Bush on June 30, 2003, for a term ending June 29, 2018.  Instead of seeking “senior status” on the Tax Court, Judge Holmes sought to be reappointed for a second term.

On April 17, 2018, the Taxpayer Advocate, Nina E. Olson, testified before a Congressional Oversight Committee regarding on-going challenges to the administration of an efficient and effective tax system. Ms. Olson runs the Taxpayer Advocate Service (TAS), an independent office within the Internal Revenue Service (IRS). The Taxpayer Advocate is appointed by and reports directly to the Commissioner of Internal Revenue. The office was created under the Taxpayer Bill of Rights, which became law on July 30, 1996. The office replaced the IRS Office of the Ombudsman. Continue Reading National Taxpayer Advocate Reminds Congress of IRS Deficiencies

The expiration of the time for the Internal Revenue Service (IRS) to assess tax can bring closure on prior tax and financial reporting positions for taxpayers. We have previously reported and written for the International Tax Journal about tax statutes of limitation both generally and in the international tax context. As a follow-up to those materials, we wanted to alert you that the IRS recently released a Practice Unit providing an overview of statutes of limitation on the assessment of tax. These materials are all good resources and starting points for taxpayers and practitioners with questions on statutes of limitation.

In a press release this morning, President Trump announced his intent to nominate Emin Toro to serve as a judge on the United States Tax Court (Tax Court). This is the latest in a wave of nominations to high-level tax positions within the government, as we have previously covered here and here.

Mr. Toro is currently a partner in the Washington, DC, office of Covington & Burling LLP. His practice focuses on the needs of multinational companies, including both tax controversies and counseling. Mr. Toro’s experience includes audits, administrative appeals, litigation and transfer pricing matters. He received his JD from the University of North Carolina School of Law in 2000 and clerked for the Honorable Karen LeCraft Henderson, US Court of Appeals for the District of Columbia (2000–2001) and the Honorable Clarence Thomas, US Supreme Court (2002–2003).